The Globe and Mail reports in its Tuesday, Dec. 18, edition that Bank of Canada Governor Stephen Poloz warned Monday that a U.S.-China trade war could spark 1970s-style stagflation.
The Globe's Barrie McKenna and David Parkinson write that Mr. Poloz identified escalating trade tensions as his biggest concern for the economic outlook in 2019, and expressed annoyance that the global economy is at the mercy of self-inflicted geopolitical problems. Mr. Poloz said: "It's kind of self-created. Someone has done it. When it's purposeful, that certainly adds another layer of frustration to my thinking."
The Trump administration has threatened to slap 25-per-cent tariffs on virtually everything China sells in the United States by March 1 unless the two sides can reach a deal to defuse their trade differences. Mr. Poloz warned that a much larger tariff hit would set off a combination of weaker growth and a dangerous spiral of inflation.
A 25-per-cent tariff would create a burst of inflation that central banks could find very difficult to contain.
Much of the rest of the world would become "innocent bystanders" as the aftershocks of a trade war rippled across the global economy, said Mr. Poloz.
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